The 10 most oversold ASX 200 stocks – Week 7

Domino's (ASX: DMP) issued a profit warning for the first-half of FY24 after market on 24 January, where the company signalled a more significant operational decline than anticipated. The stock finished the session down 31% to $39.40 or a three-and-a-half year low.

Two weeks on and the stock is still trading around the $39.40 level. It's deeply oversold but there isn't a positive catalyst in sight.

The 14-day Relative Strength Index is a momentum indicator that measures the magnitude and speed of recent price changes to assess whether or not a stock is overbought or oversold.

An RSI of 70 or above is considered to be overbought, which means the stock is rising too quickly and likely to experience a pullback. Meanwhile, an RSI of 30 or below is considered to be oversold, which means the stock is falling too quickly and is likely to experience a rebound.

Based on this indicator, Domino's is the most oversold stock on the ASX 200 with an RSI of 25.

Most Oversold ASX 200 Stocks

'Target price' is an aggregate of broker target prices from Refinitiv. Data of Friday, 9 February 2024 close.

Domino's hit investors with a triple whammy of a) an earnings downgrade; b) the withdrawal of its FY24 guidance and c) a tight balance sheet. The lack of visibility and ongoing earnings risk are expected to drive a de-rating with consensus FY24 earnings likely to be downgraded. Analysts pointed out that the store rollout targets may face further downgrades due to challenges in franchisee profitability.

Domino's 12-month price chart (Source: Market Index)

Nanosonics also pre-released its first-half FY24 result in an after hours announcement on Tuesday, 23 January. The company said sales for the period fell 2% year-on-year compared to consensus expectations of 17% growth. The stock finished the session down 33.4% to a near 4-year low.

Nanosonics cited "softer than anticipated upgrade sales with customers extending the use of their existing trophon equipment, delaying the trophon2 upgrade capital purchase" due to "hospital capital budgetary pressures."

"Convincing customers to upgrade their 1st generation trophon units seems to be more difficult than NAN anticipated and the company is now considering 'additional customer offerings'," warned Citi analysts, adding that these offerings could mean offering potential discounts and weaker margins.

Nanosonics 12-month price chart (Source: Market Index)

What the data is telling us: The oversold stocks list is beginning to be littered with reporting season losers (Fletcher Building, Gold Road and Evolution also posted some disappointing quarterly results).Despite entering oversold territory, these stocks continue to face downward pressure, aligning with their disappointing fundamentals.